ISDA Margin Survey 2013

1. INTRODUCTION
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ISDA’s annual Margin Survey, first published in 2000, provides information about the use of collateral in the OTC
derivatives business. The data used in the 2013 Margin Survey is sampled as of December 31, 2012. Over the
past 13 years, the Margin Survey has provided a consistent set of benchmarks for collateral use. Each year the
Margin Survey evolves slightly to reflect market developments, and thus in the 2013 Survey more attention is
paid to collateralization of cleared derivatives, in addition to coverage of the bilateral, non-cleared market. The
Margin Survey is part of a broader set of ISDA initiatives in the area of collateral, including documentation, best
practices and practitioner guidelines. All amounts reported are in US dollars.
Sapient served as consultants to this year’s Margin Survey; the consultants collected and aggregated individual
responses to the Survey. All data obtained from Survey responses were kept in strict confidence. Access by
ISDA and Sapient staff is strictly limited, and the data is not shared with employees of other member firms or
with any other outside party.
Please note that there are various proposed and final regulations implementing the Dodd-Frank Act and EMIR in
regard to collateral management. The results of this survey reflect data gathered prior to the implementation of
these new regulatory requirements.
1.1. COLLATERAL AS A RISK MANAGEMENT TOOL
Credit risk exists in the OTC derivatives market whenever a counterpart to a transaction has an obligation to
make payments or deliveries in the future. As discussed in numerous ISDA publications, there are several
methods of addressing the credit risk arising from a derivatives transaction, including: holding capital against the
exposure, reducing credit risk through close-out netting; having another person or entity reimburse losses
through financial guarantees; or by collateralizing the exposure 1 . Each of these methods has its advantages and
disadvantages.
The decision to use collateral to mitigate risk is one evaluated carefully by credit risk managers in each firm that
is a counterparty to a derivative transaction. This discretionary, prudential management of credit risk, which
may include the use of collateral, is a common feature across a wide range of products in the capital and retail
financial markets, including loans, derivatives, clearance and other types of transactions.
Collateralization works best in those cases where the volume of activity is sufficient to warrant bearing the
operational and procedural burdens associated with the sophisticated collateral process, provided that a legally
enforceable claim can be established against collateral. Therefore, there are cases where it is simply more cost
efficient or legally effective to rely on other methods of credit risk mitigation. Nonetheless, collateralization
remains among the most widely used methods of mitigating counterparty credit risk in the OTC derivatives
market, and market participants have increased their reliance on collateralization over the years. In an evolving
regulatory environment that broadly seeks to reduce the counterparty risk associated with derivatives, the
continued use of bilateral collateralization has an important role to play in risk mitigation.
1 ISDA’s “Market Review of OTC Derivative Bilateral Collateralization Practices” can be found on ISDA’s website at
www.isda.org.
ISDA Margin Survey 2013 June 2013